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My mother is thinking of moving to a self-care unit in a retirement village. The unit costs $460,000. She has $340,000 in cash, a super pension of $1208 a fortnight indexed and a house worth $700,000. Should she sell the house to buy the unit and invest the rest, or borrow to fund the unit?

By InvestSMART · 25 Aug 2012

By InvestSMART ·
25 Aug 2012

Comments

You should take advice on whether the rental returns on the property, after costs, would be more than investing the proceeds from its sale. Unlike aged care, the rules that enable people to rent their former home with certain asset and income exemptions don't apply to those living in a retirement village.

I turn 65 next July, work part time and my wages represent 25 per cent of my gross taxable income. Can I make non-concessional super contributions after 65 if I'm working the same hours? Can I make non-concessional contributions three weeks before I turn 65? What is the limit I can contribute once I reach 65? If I use shares as a non-concessional contribution to my DIY super fund, is there an annual limit on the amount before and after 65 while satisfying the work rule?

You can make any kind of contribution until 75, provided you pass the work test, which involves working 40 hours within 30 consecutive days in the financial year in which you make the contribution. People aged 65 to 75 have the same contribution caps as everyone else but aren't able to bring forward three years' non-concessional contributions.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general and readers should seek their own professional advice. Email: noelwhit@gmail.com.

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Frequently Asked Questions about this Article…

Should my mother sell her $700,000 house to buy a $460,000 retirement village unit or borrow to fund the purchase?

There’s no one-size-fits-all answer. The article recommends getting personalised advice to compare the likely rental returns on the house (after costs) with the returns she could earn if she sold the house and invested the proceeds. Also factor in her cash ($340,000), indexed super pension and borrowing costs before deciding whether to sell or borrow.

If my parent moves into a retirement village, can they rent out their former home and keep asset/income exemptions?

No. Unlike aged care, the rules that allow people to rent their former home while keeping certain asset and income exemptions do not apply to residents of retirement villages. That regulatory difference is important when weighing whether to keep and rent the house or sell it.

What should I compare when deciding to keep and rent a house versus selling and investing the proceeds?

Compare the expected net rental return (rental income minus all ownership costs) with the likely investment return you could get from the sale proceeds. The article advises taking professional advice to accurately estimate after‑cost rental returns and investment outcomes before making a decision.

Can I make non-concessional super contributions after I turn 65 if I’m still working part‑time?

Yes — you can make any kind of contribution until age 75, provided you meet the work test if you’re aged 65 to 75. The work test requires working at least 40 hours within any 30 consecutive days in the financial year in which you make the contribution.

Can I make a non-concessional contribution three weeks before I turn 65?

Yes. You can make contributions before you turn 65. The article’s key point is that contributions are allowed up to age 75, but from 65 to 75 you must satisfy the 40‑hours‑in‑30‑days work test in the financial year you make the contribution.

What is the annual non-concessional contribution limit once I reach 65?

The article states that people aged 65 to 75 have the same contribution caps as everyone else, so the annual caps that apply generally also apply to you at 65. However, the article does not specify the numeric caps — and it notes that people aged 65–75 cannot use the three‑year bring‑forward rule for non‑concessional contributions.

If I use shares as a non-concessional contribution to my DIY super fund, are the annual limits different before and after 65?

No — the same contribution caps apply. The article explains that those aged 65 to 75 have the same contribution caps as everyone else, but if you are 65–75 you must meet the work test and you cannot access the three‑year bring‑forward for non‑concessional contributions.

Should I get professional advice before deciding about retirement village moves or super contributions?

Yes. Noel Whittaker’s guidance in the article is general, and it recommends seeking personalised professional advice to assess rental returns, borrowing implications and the best super contribution strategy for your circumstances.